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Strategic Wage Setting and Coordination Frictions with Multiple Applications

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  • Pieter A. Gautier

    ()
    (Erasmus University Rotterdam)

  • Jose L. Moraga

    ()
    (University of Groningen)

Abstract

We examine wage competition in a model where identical workers choose the number of jobs to apply for and identical firms simultaneously post a wage. The Nash equilibrium of this game exhibits the following properties: (i) an equilibrium where workers apply for just one job exhibits unemployment and absence of wage dispersion; (ii) an equilibrium where workers apply for two or for more (but not for all) jobs always exhibits wage dispersion and, typically, unemployment; (iii) the equilibrium wage distribution with a higher vacancy-to-unemployment ratio first-order stochastically dominates the wage distribution with a lower level of labor market tightness; (iv) the average wage is non-monotonic in the number of applications; (v) the equilibrium number of applications is non-monotonic in the vacancy-to-unemployment ratio; (vi) a minimum wage increase can be welfare improving because it compresses the wage distribution and reduces the congestion effects cause! d by the socially excessive number of applications; and (vii) the only way to obtain efficiency is to impose a mandatory wage that eliminates wage dispersion altogether.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 04-063/1.

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Date of creation: 01 Jun 2004
Date of revision: 16 Aug 2004
Handle: RePEc:dgr:uvatin:20040063

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Web page: http://www.tinbergen.nl

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Keywords: search; wage setting; coordination frictions; wage dispersion;

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References

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  1. Coen N. Teulings, 1998. "The Contribution of Minimum Wages to Increasing Wage Inequality," Tinbergen Institute Discussion Papers 98-093/3, Tinbergen Institute.
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Citations

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Cited by:
  1. Shapiro, Joel, 2006. "Wage and effort dispersion," Economics Letters, Elsevier, vol. 92(2), pages 163-169, August.
  2. Natalya Y. Shelkova, 2009. "The Minimum Wage Spike in the Search Economy with Wage-Posting," Working papers 2009-40, University of Connecticut, Department of Economics.
  3. Wolthoff, Ronald P., 2010. "Applications and Interviews: A Structural Analysis of Two-Sided Simultaneous Search," IZA Discussion Papers 5416, Institute for the Study of Labor (IZA).
  4. Wolthoff, Ronald P., 2011. "It's About Time: Implications of the Period Length in an Equilibrium Job Search Model," IZA Discussion Papers 6002, Institute for the Study of Labor (IZA).
  5. Philipp Kircher, 2008. "Efficiency of Simultaneous Search," PIER Working Paper Archive 08-004, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  6. Gautier, Pieter A & Moraga-González, José-Luis & Wolthoff, Ronald, 2007. "Structural Estimation of Search Intensity: Do Non-Employed Workers Search Enough?," CEPR Discussion Papers 6440, C.E.P.R. Discussion Papers.
  7. Manolis Galenianos & Philipp A. Kircher, 2005. "Directed Search with Multiple Job Applications," Bonn Econ Discussion Papers bgse20_2005, University of Bonn, Germany.
  8. John Kennes, 2004. "Competitive Auctions: Theory and Application," CAM Working Papers 2004-17, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  9. Pieter A. Gautier & Ronald P. Wolthoff, 2006. "Simultaneous Search with Heterogeneous Firms and Ex Post Competition," Tinbergen Institute Discussion Papers 06-032/3, Tinbergen Institute.
  10. repec:gua:wpaper:ec201001 is not listed on IDEAS

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